In his final campaign ad, Donald Trump portrayed Goldman Sachs as part of a global elite whose careful manipulation of the American economy had “robbed our working class.” Now, the president reportedly plans to put a former president of Goldman in charge of carefully manipulating the American economy.
Next year, Janet Yellen’s term as chair of the Federal Reserve will expire. And the chances of Trump renominating the female technocrat — who has never displayed personal loyalty to him — appear close to zero. Instead, the president is poised to pick Gary Cohn as her replacement, according to Politico.
“It’s Gary’s if he wants it, and I think he wants it,” one GOP source told the outlet. That assessment was buttressed by three other anonymous Republicans privy to the selection process.
If nominated and confirmed, Cohn would take the wheel at a critical time for the central bank — and for Trump’s presidency. Under Yellen, the Federal Reserve has begun gradually raising interest rates after keeping them close to zero for nearly a decade after the financial crisis. Some on the right have been anxious to see more rapid increases.
But a more dovish policy would be in the interest of both the Trump administration and (arguably) the American economy. The Federal Reserve has a dual mandate to promote price stability and full employment. When unemployment presents a greater threat than inflation, the central bank lowers rates; when the opposite is true, it raises them.
That’s how it’s supposed to work, anyhow. But over the past seven months, the central bank has been raising rates despite the fact that we’ve yet to hit their (historically hawkish) inflation target of 2 percent. At present, core inflation is hovering around 1.4 percent, while growth remains tepid and wage growth is slowing.
If the Federal Reserve moves forward with its planned rate increases anyway, it could stymie economic growth, or even tip the country into recession — a development that would likely help Democrats realize their dreams of engineering a big blue wave in 2018, and/or cost the GOP the White House in 2020. The risk of such an outcome is exacerbated by the central bank’s plans to shrink its balance sheet, by shedding the trillions of dollars’ worth of Treasury bills and mortgage-backed securities that it gobbled up in the wake of the financial crisis.
Unlike every Fed chair since G. William Miller, Gary Cohn is not an economist. His views on monetary policy are not well known. But if he were to let the president’s political needs dictate his actions at the central bank, our economy might very well prove better for it. In a world where powerful creditors’ fears of inflation — and appetite for higher rates — push the Federal Reserve in a hawkish direction, Cohn’s desire to serve the GOP’s immediate electoral interests could act as a beneficent countervailing force.
On the other hand, allowing the former president of Goldman Sachs to sit atop one of Wall Street’s most powerful regulators seems a bit like having the fox watch the henhouse. Which would, of course, be a feature not a bug to a White House full of foxes.
It’s possible, then, that Cohn’s nomination would be opposed by a motley coalition of populist Democrats and hawkish Republicans. To this point, however, the Senate GOP has evinced little appetite for fighting Trump’s appointments, no matter how outlandish.
Regardless, it’s still not certain that Cohn wants the gig, which could be a bit dry, academic, and cloistered for a career businessman’s tastes. And Trump’s sympathies are famously fickle. If Cohn fails to shepherd tax reform through Congress, the president may look in another direction. A lot can happen between now and next year.
